MG106 Strategic Management
London School of Economics and Political Science
June 26, 2025
How do companies selling colored sugar water 💧 earn 35% profit margins for over 100 years? 🤔
1️⃣ Why are concentrate producers so profitable?
2️⃣ How do they control without owning?
3️⃣ Did competition destroy or create value?
4️⃣ What’s their future in a health-conscious world?
15 minutes with your group - Apply the framework!
What forces explain the profitability?
| Concentrate Producer | Bottler | |
|---|---|---|
| Gross Margin | 83% 📈 | 35% 📉 |
| Pretax Profit | 35% 💎 | 9% 😔 |
| Capital Required | $50M | $75M+ per plant |
| Plants Needed | 1 nationally | 80-85 nationally |
Same industry, vastly different economics
Zero successful cola entrants in 50+ years
What goes in:
Economics:
| Channel | Power | Profit/Case | Why? |
|---|---|---|---|
| Fountain 🍔 | HIGH | $0.09 | McDonald’s can switch |
| Supermarket 🛒 | MEDIUM | $0.23 | Some negotiation |
| Vending 🎰 | LOW | $0.97 | Captive consumers |
| Drink | Price | U.S. Consumption |
|---|---|---|
| Tap Water 💧 | $0.00 | Available everywhere |
| Coke 🥤 | $1.00+ | 53 gallons/year! |
Compete ON ✅
NEVER Compete ON ❌
1899-1980: Independent bottlers with perpetual contracts
1980s-1990s: Buy bottlers for direct control
2000s: “Anchor bottlers” - equity stakes without ownership
Control the economics, not the assets
What the Left Graph Shows 📊
What the Right Graph Shows 📈
Smart competitors expand the pie while consolidating share
Population Shifts
Market Reality
Defend cola profits
Risk: Irrelevance
Total beverage company
Risk: Diluted focus
Redefine the category
Risk: Brand confusion
Structure Drives Profitability 🏗️
Concentrate producers win through favorable forces while bottlers struggle
Control Beats Ownership 🎯
Shape the value chain without owning the assets
Competition Creates Value 🤝
Cola Wars grew the total market for both players
Advantages Erode ⏳
Health trends and digital disruption challenge dominance
The best strategies shape industry structure to your advantage
Great strategies work with forces, not against them
READ: Airborne Express
Preview: Can focus beat scale?
Different industry, different forces
What would Porter say?